daily. The bond market is highly volatile. How do you read the graphs so as to know if interest rates will have a spike downward or upward?
While looking at the 10 year price graph (the farthest one on the right), if the 10 year price has a massive swing upward from say 99 28/32 to 103 28/32, rates most likely will have a decrease from current levels. On a daily basis, California loan agents receive rate sheets from lenders (we work with over 400 lenders so they are plentiful).
If the bond market fluctuation merits an increase or decrease in the loan broker's yield spread premium (their rebate), it will in turn affect the interest rate that is quoted to a client, which in this example would be a lower rate. If the bond price doesn't have much of a fluctuation during a normal business day, the rate will not move. Every day, in the morning, rates are received in the office. If a price adjustment is required, the primary lenders will immediately issue an adjustment rate sheet to their broker partners.
As I've said, interest rates are set based on the yield in the bond market at any given time. Let's show an example. If, for example, a $100,000.00 bond falls in value to $95,000.00, the corresponding yield (return) is significantly higher. Because the yield is higher, the prevailing interest rate that is set for the mortgage must offset the higher yield and provide a return on the mortgage for the lending institution. With all things being equal, the rates on fixed rate mortgages would tend to rise.
Multiple Forces in The Economy
There are many factors influencing interest rates for your California home loan in the US economy. Higher interest rates can cause fluctuations in the stock market which in turn affects the bond market. In fact, the bond market and the stock market are opposite sides of the same coin. One can't move without the other. If the US Dollar rallies, bonds dip; when oil prices dip, bonds can as well. Generally speaking, when the bond market is up, the stock market is down. In addition, if economic news is worse or better than expected, it will cause a fluctuation in the US dollar currency pairs in the spot Foreign Exchange market (the FOREX), which can affect the bond market and in turn rates.
A quick example. A couple of weeks ago from this writing, the US New Jobs report was projected at 350,000 -- it only came in at 10% of that or 35,000. Once the report was announced, literally IMMEDIATELY the GBP/USD currency pair (Great British Pound and US Dollar) spiked upward. The GBP dramatically increased in strength with the US Dollar becoming weaker. One trader I know literally made $3,500 in five minutes as he projected the claims to be much less than expected.
Also, interest rates dropped that day due to the lackluster jobs report. Coming into the office that day, a wise loan agent would have locked some loans or at the least knew interest rates would had gone down that day. Truly, the US economy is a highly interdependent organism that is very fluid and dynamic -- it is never static or motionless. Some of the key economic indicators that affect the economy, and in turn interest rates, are:
Durable Goods Orders
New Home Sales
US Trade Balance
Weekly Initial Jobless Claims
Fed Chairman Greenspan Speech Before Congress
The key economic indicators that can affect the bond market with corresponding fluctuations are:
There you have it. There are many forces at work in determining what your rate is on any given day. So the next time you ask a loan agent, "what are rates like today?" You'll see there's a lot behind it.
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